Hemlock for economic students
(Putting effective demand in the long run and prices of production together)

Thursday, July 21, 2011

Financial Times thinks rating agencies did a good job

A bizarre article in the Financial Times, by Jude Webber, that claims that Argentina's recovery "is not quite as attractive or clean-cut as some of its proponents suggest." There are lots of factual mistakes and half-truths. Just an example. They say Argentina's investment at 19.4% of GDP last year was too low. Compared to what? The US that was at 15.9%, or Argentina in 2002 when it was around 10%? So the problem with Argentina is that is not China?

Also, they say that Argentina's "economy [is] just a sixth of the size of Brazil’s and a third of Mexico’s," and is going to be overtaken by Colombia. The only thing they forgot to tell you is that the population of Argentina is just a one fourth of the Brazilian and around 40% of the Mexican, and that if you measure GDP in dollars, since the Brazilian and Mexican currencies are appreciated, it would overestimate the GDP of those countries and underestimate the Argentine. Data from the World Bank puts the Argentine Gross National Income (GNI) in Purchasing Power Parity (PPP) at the Mexican level (around US$14,000 in 2009) and above the Brazilian (close to US$ 10,000). These seem more than just simple mistakes, and it's appalling that they publish this kind of stuff.

Let alone that the idea that the "recovery" (Argentina passed the peak of the previous cycle in 2005, but okay let's call it a recovery) is risky is strange (this from people that did not see anything risky about Convertibility!!!). The country has current account surpluses, high levels of reserves, and debt denominated in foreign currency shrunk incredibly. How is this risky? They seem to have more trust in the views of rating agencies than the hard numbers. In fact, the article says that the president (Cristina Fernández de Kirchner) "believes the rating agencies got the financial crisis wrong.” I was also under the impression that rating agencies did give triple-A ratings to subprime bonds. Was that a correct assessment of their riskiness in FT’s view? Is that just her belief or is it a fact? Do FT's journalists know the difference? They only report what people believe, and do not check (if this actually needed checking) whether it is true or not?

PS: I'll leave the inflation stuff for another post. Will not deal with the absurd implication that kiosks that sold Clarin were closed because the newspaper was critical of the government. The problems have more to do with Clarin's business dealings with the murderous dictatorship of the 1970s, that gave it a quasi-monopolistic position in newsprint. In fact, this government has an incredibly positive record of defending human rights and those that were oppressed during the last Argentine dictatorship.